China, finally, emerging as big market for solar demand

The potential of China as a major market for solar demand (not just a hub for manufacturing) has been bandied about for a few years now. When the Chinese government announced the “Golden Sun” initiative in 2009 and a plan to set a feed-in tariff, bullish forecasts and optimism emerged. But the market didn’t take off like a rocket, causing companies such as Suntech Power to dial back its sales expectations back then.

However, now Suntech (s STP), the largest solar manufacturer in China if not the world in terms of production capacity, expects more of its panels to be planted on its home turf than every before — 22 percent of Suntech’s sales in the third quarter of this year came from China. The company previously thought the Chinese market would add 1 GW of solar in 2011, but now it expects 2 GW, according to Andrew Beebe, Suntech’s chief commercial officer, during a conference call to discuss the company’s earnings Tuesday.

China could add 3-4 GW next year, Beebe said. And Suntech’s CEO, Zhengrong Shi, said he wouldn’t be surprised if the figure is over 4 GW. At 4 GW, China would occupy as much as one-fifth of the anticipated global market next year, noted Collins Stewart analyst Dan Ries during the same conference call.

“We are bullish about our position there next year,” Beebe said. Suntech is careful about selecting partners in expanding its domestic market reach and recently teamed up with German developer, Wirsol Solar, to develop projects in the Chinese province of Qinghai, he added.

So what happened? While China ended up structuring the Golden Sun initiative to subsidize part of the cost of installing a solar energy project, what Chinese solar companies really wanted was the feed-in tariff, which refers to solar electricity pricing set to guarantee a good return for solar energy project investors. Feed-in tariffs have made European countries such as Germany and Italy the top solar markets in the world. And it wasn’t until this summer that China finally set that national feed-in tariff.

Chinese companies have been announcing sales and project development deals in the past three years, but with the availability of the feed-in tariff, the development pace and project size are growing. Last week, GCL-Poly Energy said it signed an agreement to deal a 1 GW project with the solar subsidiary of the state-owned China Guangdong Nuclear Power in Shanxi Province.

American companies no doubt hope to carve out a slice of the Chinese market as well, but how quickly they can do so remains to be seen. First Solar (s FSLR) signed a memorandum of understanding with the local government in Inner Mongolia in 2009 and was hoping to start construction for the first phase of that project this year. But regulatory approval has taken longer than expected. Plus, the company said it also wanted to wait until China has set a feed-in tariff.